As sales slow, approach lending with a wider lens

Will affordability pressures put lenders and dealers at odds?

In a volume-driven environment, maybe.

As U.S. new-vehicle sales slow, dealers are under pressure to sell more cars, but as interest rates and transaction prices rise, many customers' budgets have tightened. The push and pull may tempt some dealers to be more relaxed about the terms of a loan, despite lenders' advice.

Many lender executives who spoke at the Auto Finance Summit in Las Vegas last month suggested that lenders avoid approving long loan terms, stretching loan-to-value ratios and requiring less money down, especially if a customer is already underwater.

A flippant attitude around the terms of a vehicle loan to clock in one more car for the month comes with immediate gratification. But the potential long-term effect -- a customer who is upside down or can't pay other debt -- could set both dealers and lenders up for a rocky future, with customers out of the market longer.

Dealers and lenders face pressures from multiple angles. The market is healthy for now, but if dealers and seasoned lenders don't work together to decide which loan a customer qualifies for, if any, customers could land in financial jeopardy.

The day-to-day pressure of automotive retailing is tough to dismiss, but considering a deal with a wider lens could benefit the industry and its consumers in the long run.

You can reach Hannah Lutz at hlutz@crain.com -- Follow Hannah on Twitter: @hm_lutz

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